Sometimes, a topic generates so much input that letting it go is difficult, and when it is one as important as this (the reality of trading the markets), letting it go becomes even more difficult. So, at least for one more day, the subject of high-frequency trading moves us to another topic …
I agree with your high frequency trading comments. All small investors are hit by this. But don’t you think that the Hedge Fund managers are also taking their part in it too. They put in enormous bids for indices or shares and then withdraw the bid. As a consequence, the price is driven down far enough for them to buy low and then make a fortune selling high. We badly need regulation because what happens in America happens all over the world. It has become a global casino operation by the Hedge Fund boys.
Even though this gentleman conflates two distinctly different issues, both are important. The issues are high-frequency trading and the manipulation of the markets. Yes, some hedge-fund managers are active high-frequency traders, and, in this regard, they contribute to the problem that is facing us today. The specific issue you mention, however, is not particular to hedge funds, or high-frequency trading.
Manipulating the broad market on a massive scale is, at best, a daunting task. Big money, however, can move the broad market through fear or through exuberance, but this requires a huge effort that involves the “breathless” media and a series of events that foster either exuberance or fear. In fact, what is happening in the markets today is an excellent example.
The volatility we are seeing today is big money buying and selling, going long and going short, and taking profit on both ends. The reason is the fear generated by the economic issues in Europe and, to some degree, the fears around the Chinese economy as a potential bubble. Both of these issues are important, consequential, and influential, and we should all watch closely. The reality, however, is that these issues have been with us for some time. Nothing is new.
So why has the broad market gone haywire? Is it that faith in the U.S recovery is gone? Me thinks not, as each month the economic news gets better. Even the critically important areas of unemployment and housing are slowly improving. Is it the rising deficit and long-term debt? Me thinks not, as we have been here before on numerous occasions. Is it the fear of hyperinflation related to the injection of liquidity into the system from the Federal Reserve? Me thinks not, as this past month’s numbers on core inflation are low. Well, then, maybe it is deflation that is causing the concerns? Perhaps, but, like the deficit and debt, we have been here before, as well. No, in my opinion, it is big money pushing and pulling the markets in both directions because of the fear, and it will only end when the breathless media changes the tone of the “news.”
On a darker note, manipulations happen in the dark side of trading that I do not know, do not understand, and will never know or understand. Money is power and lots of money means lots of power, and lots of power equals the ability to move large objects, including broad markets. This is the reason we need to get financial regulation with teeth moving quickly and forcefully. Although it won’t eliminate the power and influence of big money altogether, it will, at least, level the field closer to flat.
Trade in the day; invest in your life …
